April 15 (Bloomberg) -- Confidence among U.S. homebuilders in April increased to the highest level since October, a sign low lending rates and government efforts to stabilize the housing market may be putting a floor on the industry’s slump.

The National Association of Home Builders/Wells Fargo index of builder confidence rose to 14 from 9 the prior month, the biggest gain since May 2003, the Washington-based NAHB said today. A reading below 50 means most respondents view conditions as poor.

Record-low mortgage rates and falling home prices are beginning to stir demand for housing after almost four years of declining sales. Still, inventories near record levels, spurred by foreclosures, indicate any recovery in housing will be lengthy as the economy remains mired in what may become the longest recession in seven decades.

“Builders are generally a hopeful bunch so it is no surprise that the stabilization in the broader economy fed through to the confidence index,” Tom Porcelli, a senior economist at Castlestone Management Ltd. in New York, said before the report. “We would only caution that hope is a soft foundation.”

The builder confidence index was expected to rise to 10 this month, according to the median estimate of 44 economists surveyed by Bloomberg News. Projections ranged from 8 to 12. The index reached a record low of 8 in January.

The gauge, first published in January 1985, averaged 16 last year.

Sales Expectations

The confidence survey asks builders to characterize current sales as “good,” “fair” or “poor” and to gauge prospective buyers’ traffic. It also asks participants to forecast the outlook for the next six months.

The builders group’s index of current single-family home sales rose to 13 this month from 8 last month. The gauge of buyer traffic rose to 14 from 9. A measure of sales expectations for single-family homes over the next six months surged to 25 from a record low of 15.

Confidence rose in all four regions of the U.S., led by an eight-point gain in the Northeast to 16 and a six-point increase in the Midwest to 14.

“This is a very encouraging sign that we are at or near the bottom of the current housing depression,” David Crowe, chief economist at NAHB, said today in a statement. “Some of the most favorable buying conditions in a lifetime are now in place, and they are drawing more consumers back to the market.”

Southern California

Southern California house and condominium sales climbed 52 percent in March from a year earlier as buyers took advantage of prices 35 percent lower than the same period in 2008, MDA DataQuick said.

A total of 19,486 new and existing properties sold last month in Los Angeles, Riverside, San Diego, Ventura, San Bernardino and Orange counties, up from 12,808 a year earlier, the San Diego-based research company said today in a statement. Foreclosures helped drive the median home price in the region down to $250,000 from $385,000 a year earlier.

Federal Reserve purchases of mortgage-backed securities pushed average rates on 30-year home loans to 4.78 percent the week ended April 2, the lowest since the data began in 1971. That has spurred a surge in applications to buy homes and refinance mortgages.

Job Losses

President Barack Obama’s administration has pledged $275 billion to help keep as many as 9 million borrowers in their homes and reduce foreclosures. Steps to aid the housing industry also include tax breaks for first-time homebuyers.

Sales of both new and existing homes rose in February from record lows. Still, rising unemployment continues to stifle demand as Americans shy away from big-ticket purchases. The jobless rate rose to 8.5 percent in March, the highest in a quarter century, and economists forecast it will rise another percentage point by the end of the year.

With job losses mounting, foreclosure filings rose 30 percent in February from a year earlier, RealtyTrac Inc., a seller of default data, reported. Property values may fall further as foreclosures return homes to the market. Home prices in 20 U.S. cities tracked by the S&P/Case-Shiller index have dropped 29 percent since their peak in July 2006.

Housing Starts

Homebuilders continue to struggle. A Commerce Department report tomorrow may show housing starts last month fell 7.4 percent to an annual rate of 540,000, according to a Bloomberg survey. That would be 76 percent lower than the peak rate of 2.27 million in January 2006 and near the historic low of 477,000 reached this past January. Building permits probably fell 2.7 percent to a 549,000 annual rate, the survey showed.

Lennar Corp., the fourth-largest U.S. homebuilder, last month said it posted a wider first-quarter loss than a year earlier, along with falling orders.

Still, Lennar Chief Executive Officer Stuart Miller said on a conference call March 31 that some housing market indicators were showing signs of stabilization.

“Interest rates are at an historical low and have been falling,” Miller said. “Lower rates together with seasonal trends have clearly moved sales higher in the past few weeks.”

To contact the reporter on this story: Bob Willis in Washington bwillis@bloomberg.net

Last Updated: April 15, 2009 13:53 EDT